Another Round Of Financing For Bitcoin Startup Circle

After turning heads for closing a $9 million round in the fall, Bitcoin startup Circle raises another $17 million. Should investors be worried it's raising capital so quickly?

Back in October, Bitcoin startup Circle Internet Financial made quite a buzz when it announced it had raised $9 million from Accel Partners, General Catalyst Partners, and others. For starters, institutional capital had been wary of virtual currencies, and at that time, the round was the largest amount raised for a company built on Bitcoin. As Circle ramps up and prepares to debut its first consumer product, the company announced Wednesday it has raised an additional $17 million.

The series B round, which closed in February, includes existing participation from Accel and General Catalyst along with new investors: Oak Investment Partners; Pantera Bitcoin Ventures; Barry Silbert, who runs the Bitcoin Opportunity Fund; and Leonard H. Schrank, former CEO of financial communications platform SWIFT. Circle board members M. Michele Burns, who also sits on the board of Goldman Sachs, and Raj Date also invested in the round, the latter though his venture capital firm Fenway Summers. In addition, Circle on Wednesday opened a limited release of its service allowing consumers to convert their local currencies into Bitcoin.

Raising capital so quickly can be a red flag for potential investors. Adley Bowden, director of research at Seattle-based Pitchbook, which tracks private equity and venture capital activity, says it's typically a sign of two things: rapid growth or mismanagement. If a company is able to attract more VC dollars, it's likely not the latter, he notes.

"The typical round is usually between roughly a year and two," Bowden tells Fast Company. "Someone raising under that—usually it means they have worked through their initial capital raise, and still need more than what they initially planned." According to Pitchbook's data, 18 deals totaling $56.1 million were invested in Bitcoin-related companies in 2013, up from four deals totaling about $900,000 the year prior. Furthermore, Bowden says there's been pent-up demand to invest in Bitcoin companies. "The potential is huge," he says. "It's really just emerging, and I think we're right at the beginning portion of an investment wave into Bitcoin."

Circle founder, chairman, and CEO Jeremy Allaire says the series B round points to such demand, as well as the company's growth. "There's a very scarce number of high-quality opportunities in the marketplace. We're perceived as a high-quality opportunity, so there's a desire for people to invest more in this potential category leader—in a potentially large global market," says Allaire, who led video services company Brightcove to its IPO in 2012.

David Orfao, a partner at General Catalyst, says he was drawn to Circle because of its leadership and Bitcoin's potential. "Unlike first-generation Bitcoin startups, Circle has the leadership, the team, and the backing to build truly mainstream financial products for what we believe to be a very significant global market," he says. The fact that Circle had raised money from the firm over the summer was actually a "green flag" for him: "The company is executing well, with calculated investments that have allowed the team to develop compelling technology," Orfao adds.

Allaire says Circle needed the additional capital because building a financial institution is capital-intensive. "This is not your bootstrapped social media sharing app that people do in their garage. There's a different level of capital required to build this kind of institution," he says.

With Circle's first consumer product, Allaire says the company has built "a highly secure architecture," including encryption and multifactor authentication, to prevent thefts, a problem faced by a number of Bitcoin companies. "The private keys are offline and not accessible to hackers," he says. "With digital currency, if someone has access to the private key, they have the money and can transfer it in an irreversible manner."

Scaling Circle's products will be its next challenge. Though the company is "operationally ready," Allaire says, it will gradually increase the number of early invites to consumers to gather feedback on features before launching globally. "The total addressable market is ultimately every consumer with Internet access on a mobile device," he says. The company has not yet revealed how it will make money off its services, but Allaire says it's also planning to release a product aimed at businesses later this year.

[Image: Flickr user Beverley Goodwin]

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